Entry Price: $33.14
Trade Date: Aug 7, 2020
Potential Exit Points: Near the top of the Bollinger Bands at around 35.70 or wait until after the next earnings (October 19, 2020) and exit after collecting the dividend.Charles Schwab (NYSE: SCHW) is one of the largest brokerage firms in the country. A wave of consolidation across the industry is putting Schwab at a dominant position. In the near-term, Schwab faces pressure on its revenues due to the zero interest rate policy (ZIRP) of the Federal Reserve. The ZIRP is impacting Schwab's net interest margin, but it is having a positive impact on the number of trades executed. People everywhere are hungry for yield. Charles Schwab has also been successful in growing its asset base at a long-term growth rate of 6% due with its deft use of acquisitions to bolster assets. The companies with the largest asset bases will survive and Schwab with $4 Trillion in assets will be one of those survivors.
Exhibit: Schwab Growing New New Assets at around 6%
(Source: SeekingAlpha)
The consolidation in the industry will leave very few large players dominating the industry. Schwab recently acquired TD Ameritrade and Morgan Stanley acquired E*Trade. I am hoping to hold on to Schwab until after the next quarterly earnings and the dividend payment, which I anticipate would be a good one.
From a technical analysis point of view, I am not fully convinced this is the perfect trade. The Simple Moving Averages are screaming a sell while some of the oscillators are signalling a buy. Overall the technical indicators are flashing a sell signal.
Exhibit: Charles Schwab Technical Indicators - August 8, 2020
The stock was trading near the lower price range of its Bollinger Bands and had a double bottom. That, along with the fundamentals, is what prompted me to buy the shares.
Exhibit: Charles Schwab's Double Bottom
(Disclosure: I own Charles Schwab)
